My personal blog about international trade, public policy & politics, pop culture, and stuff that probably interests only me

Sunday, April 18, 2010

Senate Fans of Carbon Tariffs May Have Changed Their Tune, but the Song Still Stinks

Given the current partisan makeup of the US Senate, any small group of Senators wields enormous influence over the legislative process. With this fact in mind comes news that a group of ten Senators, led by Sen. Sherrod Brown (D-OH), have sent a letter to Sens. John Kerry (D-MA), Joe Lieberman (I-CT) and Lindsay Graham (R-SC), setting out their demands for the new Senate climate change energy green jobs legislation, which is set to be unveiled in the next week or so. And unsurprisingly, one of the Senators' demands is for carbon tariffs:

Apply Border Measures To Prevent Carbon Leakage. An automatically triggered border measure is necessary to promote comparable action from other countries and prevent carbon leakage. To avoid undermining the environmental objective of the climate legislation, a WTO-consistent border adjustment measure, which the WTO has recognized as a usable tool in combating climate change, should apply to imports from countries that do not have in place comparable greenhouse gas emissions reduction requirements to those adopted by the United States. A border adjustment measure is critical to ensuring that climate change legislation will be trade neutral and environmentally effective.

It's already quite certain that the new Senate bill will include some form of "border adjustment measures" (aka carbon tariffs), so this letter isn't really changing anything in that regard. But its substance is still worth exploring. As you may recall, this is not the first such letter sent by Sen. Brown and his merry band of protectionists. An almost identical list of Senators sent a similar letter last August demanding carbon tariffs provisions in the 2009 version of the Senate's cap-and-trade bill. Last time, however, their sole justification for the measures was to ensure a "level playing field" for American manufacturers who would face significantly higher costs under the energy tax scheme.

Yet now, these rust-belt Senators have dropped their heartfelt concerns about protecting constituent industries and instead want carbon tariffs only to ensure that the law is "environmentally effective" by preventing "carbon leakage" (i.e., the offshoring of dirty, carbon-intensive manufacturing). How eco-friendly of them. Now, leaving aside for a moment that there is an increasingly largebody of scholarshipdemonstrating that (a) carbon leakage isn't a significant threat, and (b) border measures actually won't prevent what little carbon leakage will occur, let's focus for a moment on the Senators' abrupt change in reasoning. What on earth could have caused this conspicuous about-face?

Well, it appears that the Senators' rhetorical shift is - shocking, I know - a rather ham-handed attempt to keep their cherished carbon tariffs consistent with WTO rules. As Cato's Sallie James explains:

[T]he almost convincing attempt by these senators to cloak their protectionism in green-speak about the need to ensure that climate legislation is environmentally effective. They will have to keep that up, too, if they are to stay on the right side of WTO law, which says there must be a clear link between a trade measure and an environmental purpose if the measure is to be at least prima facie legitimate. Imposing border measures to address adverse competitiveness effects of domestic environmental regulations, in other words, probably won’t cut it. ([Sallie's paper] “A Harsh Climate” has more on why unilateral border actions may in and of themselves be inconsistent with WTO obligations.)

So last year, Senator Brown and his buddies from Ohio, Michigan, Pennsylvania, West Virginia and elsewhere were focused laser-like on maintaining their heavy-industry constituents' domestic competitiveness through carbon tariffs, but now they're only concerned with carbon leakage and the environment.

Howconvenient.

Pardon me if I'm not buying this green-change-of-heart from this gaggle of brown-state Senators. But hey, you gotta give them a little credit: they're sure trying like the dickens to wish away the problems that carbon tariffs have under WTO rules. Indeed, they've even gone so far as to pretend that the WTO has expressly sanctioned the measures' use. Of course, as James explains, this is nonsense:

[R]elated to the issue of WTO legitimacy, is the reference to the WTO “recogniz[ing]” border adjustment measures as “a useable tool in combating climate change.” This is disengenuous and possibly misleading rhetoric from the senators, because the WTO has done no such thing. There has been no formal ruling on this issue from any WTO judicial body, because no such cases have come before it. The WTO members as a group have not issued a proclamation on it, either. I suspect the senators are referring to a joint WTO/United Nations Environment Programme report that came out last year, but as I said in my paper, that report “merely summarizes the relevant provisions, precedents and existing literature on the question on WTO consistency–without reaching any prescriptive conclusion at all.” And the demand that this tool be “automatically triggered” may put it at odds with jurisprudence that says that certain administrative procedures–including the right for a WTO member to review and appeal any decisions made–must be followed (reference for the trade wonks reading this: I am referring to Shrimp-Turtle).

Looks like a serious tsk-tsk is in order here. But hey, maybe the Senators' weren't being intentionally misleading about that WTO "recognition." Instead, they may have just been parroting the undoubtedly-intentional fabrications of Paul Krugman, who has repeatedly cited the WTO-UNEP report as somehow providing the trade body's express approval of carbon tariffs. Krugman has repeated this fiction several times on his blog (see, e.g., here and here) and did it again just two weeks ago in the Sunday New York Times Magazine. As Sallie points out above, of course, Krugman's statements are both totally wrong and highly misleading, and her great paper on the subject calls carbon tariffs' WTO-legality into serious question. And as I've noted recently, the Indian government's own analysis has also raised serious WTO concerns about carbon tariffs, and the Indians have openly threatened to challenge any law that includes the controversial measures.

Krugman, of course, fails to mention any of this. But hey, it's not like he's really all that concernedaboutveracity these days, so maybe we shouldn't be too surprised by his misleading statements and glaring omissions.

That doesn't mean, however, that we can't update the ol' carbon tariffs scorecard because the new Senate letter included one new protectionist: Sen. Mark Warner (D-VA). His inclusion here is really a shame. I thought he had more sense than that. Alas.

Also, there's news out of Europe that France and Italy are demanding carbon tariffs (in what exactly isn't really clear). Their demands aren't likely to go anywhere, but back on the big list goes France, and Italy joins the protectionist party for the first time. Bellissima!